Waiting Period Penalties Can Come Back To Haunt An Employer

In California, failing to pay an employee all of his/her wages at the time of termination (or within three days in certain circumstances) results in waiting period penalties pursuant to Labor Code section 203.  This penalty, calculated at the employee's daily wage, grows each day the employee is not paid all wages, up to a maximum of 30 days. 

It is not uncommon to find an employer who fails to pay all wages at the time of termination.  For example, an employee might say, "I am leaving Tuesday but I will come back in on Friday to pick up my check."  Or an employer may fail to pay all accrued, but unused vacation.  Another common example is if the employer misclassified an employee as exempt and did not pay him/her overtime compensation.  In each of these examples, liability for waiting period penalties arises.  

Labor Code section 203(a) states that "the wages of the employee shall continue as a penalty from the due date thereof at the same rate until paid ...."  The Code of Civil Procedure, section 340(a) provides a one year statute for the recover of penalties. 

Labor Code section 203(b) states that an employee may sue for "penalties at any time before the expiration of the statute of limitations on an action for the wages from which the penalties arise."  Code of Civil Procedure section 338(a) contains a separate three-year statute of limitations for "an action upon a liability created by statue" such as unpaid wages.  

This is where it gets interesting.  Mr. Pineda was not paid until four days after termination of employment.  However, he was paid all wages due.  Those final wages were just late, by four days.  Therefore, Bank of America owed him four days of waiting period penalties.  Assuming Mr. Pineda earned $20 per hour and worked eight hours per day, the penalties totalled $640.  ($20 x 8 hrs) x 4 days = $640. 

Mr. Pineda could have gone to the Labor Commissioner and asked for his $640.  But he didn't.  He went to a lawyer who no doubt suggested filing a class action lawsuit.  Filing a class action lawsuit would not result in more money for Mr. Pineda; however, the lawyer was likely to get a lot more money.  Mr. Pineda's lawyer filed the lawsuit 18 months after the termination of Mr. Pineda's lawsuit. 

Here's the legal issue:  Does Mr. Pineda have three years in which to file a lawsuit, pursuant to Labor Code section 203(b), or because he is seeking a penalty only, must the lawsuit be filed within one year under 203(a)?  Unfortunately, the Supreme Court ruled that the three-year statute applies to all claims for waiting period penalties, whether or not the employee is also seeking unpaid wages.  (Yes, you noticed -- a $640 case made it all the way to the California Supreme Court.) 

What does this mean to employers?  It means that an employee can come back after you three years later for unpaid waiting period penalties.  It may also mean that the employer could face a class-action challenge.  Whether or not ultimately successful, the assertion of a class action lawsuit substantially increases the costs of litigation. 

Employers must scrutinize their pay practices.  Have you properly classified employees?  Do you pay overtime correctly?  Do you make rest and meal periods available?  Do you make seating available to employees who could reasonably sit and perform their duties?  Do your paycheck stubs include all of the required information?  Any small error in any of these areas could result in a claim against you.  Could you pay $640?  Of course.  But could you pay that cost multiplied by the number of employees in a similar situation?  And could you pay the attorneys' fees associated with the lawsuit?  That's a more difficult question.